"Carnegie Lad Krabang and the Carnegie Association of Thailand" course of Carnegie Lad Krabang, Lecturer for "NFT" (17 Oct 2021)

1. Kullarat Phongsathaporn / Siranya Rhuvattana | 17 October 2021

2. Agenda
1 INTRODUCTION
2 LEGAL IMPLICATION (THAI LAW)
3 THINGS TO NOTE BEFORE BUYING AND
SELLING NFTS
4 LOOKING FORWARD: CHALLENGES
AND OPPORTUNITIES IN THE THAI
MARKET

3. 1
Introduction

4. What are non-fungible tokens (NFTs)?
Definition Characteristic
An NFT is a digital asset whose
uniqueness and ownership can be
demonstrated and verified using
distributed ledger technology (DLT).
It uniquely represents an entitlement its
owner has to a digital asset (e.g. music,
images, or other digital content) or physical
asset (e.g. paintings, sculptures, or other
tangible assets).

5. How do NFTs
work?
n “Minted” to create a unique digital version of the
underlying asset as a data file using DLT. Once minted, it
cannot be edited or deleted, and can be viewed publicly
and freely traded.
n Enables efficient commercialization of unique assets that
may be difficult to sell or prove ownership of or a new
line of digital creation.
n Offers the ability to “fractionalize” ownership of the
underlying asset.
n New revenue streams from commercializing both digital
assets (e.g. significant tweet, video file, or digital version
of a physical asset) and physical assets (e.g. fine art and
luxury good).

6. The Different Types of NFTs
Art
Music Video Game
Items
Trading Cards/
Collectible
Items
Big Sports
Moments
Memes
Domain
Names
Virtual
Fashion

7. Who Is
Involved?
Though not exhaustive, a checklist of
stakeholders might include the following:
n Creator of the underlying work, virtual item or event ticket
n Creator/Minter of the NFT
n Host of underlying work (e.g., hosting service)
n Marketplace (public or private) and third-party platforms (gaming,
social, AR)
n Primary (and secondary) purchasers of the NFT
n Agency (e.g., to aid in the promotional/marketing aspects if the
NFT is promotional in nature)
n Blockchain wallet (to effectuate the transfer)
n KYC/AML provider (to address Know Your Customer/anti-money
laundering obligations and risks; some blockchain wallets provide
this)
n Carbon offset organization (to address carbon offset due to the
energy expended, which is often a part of NFT deals for PR and
other purposes)
https://www.consumerprivacyworld.com/2021/07/your-nft-playbook/

8. Ownership of NFTs
n From a general law perspective, owning an NFT is different to owning the asset
that it represents
“The purchaser of an NBA Top Shot Moment, an NFT that represents an NBA highlight clip, has
ownership rights in the NFT: they can swap, sell or give their unique token away. Purchasers,
though, cannot exclude others from accessing the highlight clips, many of which are available on
YouTube. The NFT recognises that its owner has a right to do something; in the context of a video
clip, for example, its owner may have the right to download it or stream it. The extent of the rights
granted will be set by the minter of the NFT. But a right to access or view something is very different
to owning rights in the represented asset.” [1]
What type of legal ownership?
n Considerations from an IP law perspective will be discussed shortly
[1] https://www.taylorwessing.com/en/insights-and-events/insights/2021/05/nfts-a-question-of-ownership

9. Ownership
of NFTs
Yoink! Image: Beeple
Source: https://www.theverge.com/22310188/nft-explainer-what-is-blockchain-crypto-
art-faq

10. Blockchain and Smart Contracts
Smart Contract and NFTs
Use cases: NFT’s can be embedded in smart contracts
and vice versa:
• NFT’s can be embedded within smart contracts. A
smart contract can own an NFT within it which is then
transferred to a user or another contract based on the
rules and events defined in the smart contract.
• Smart contracts can be embedded in an NFT to call
and access assets within the NFT.
The underlying
blockchain
and smart contract
together make contracts
transparent, tamper proof
and auditable in real time.
Source: https://medium.com/lansaar/nfts-and-smart-contracts-6c4c5516d5a0

11. Financial law perspective

12. Thai financial law perspective
Status under the current legal framework

13. 13
© 2020 Baker & McKenzie Ltd.
Thailand's regulatory regime
Emergency Decree on Digital
Asset Businesses, B.E. 2561
1. Offering of digital tokens
§ Digital token
§ Cryptocurrency
§ Issuer
§ Portal
2. Digital asset businesses
§ Digital asset exchange
§ Digital asset broker
§ Digital asset dealer
§ Digital asset fund manager
§ Digital asset advisor
Emergency Decree on the Amendment of
the Revenue Code (No. 19), B.E. 2561
1. New types of income
§ Share of the profit or any benefit derived from
holding or having possession of digital tokens
§ Capital gains from the transfer of a cryptocurrency or
digital token
2. Withholding tax obligations
Thai financial law perspective
Status under the current legal framework

14. Under Thai law, Digital Assets comprise two types of assets:
cryptocurrencies and digital tokens.
However, a cryptocurrency can
be deemed a digital token as
well if the issuer intends to raise
funds from the public, and if the
cryptocurrency:
a) determines the right of an
investor to invest in any
particular project or
business; or
b) determines the right to
receive specific goods,
services, or any other right
as agreed upon by the
parties.
Thai financial law perspective
Status under the current legal framework

15. There are two regulated activities under the Digital Asset Businesses Decree:
Offering of digital tokens to the public
Operation of digital asset businesses
Thailand's regulatory regime on Digital Assets
Thai financial
law
perspective
Status under
the current
legal framework

16. Thai financial law perspective
Status under the current legal framework
Digital token offering

17. Thai financial law perspective
Status under the current legal framework
Status of NFTs under the digital asset laws?
§ Digital tokens?
§ Subject to the specific characteristics and features, NFTs could be
considered as Investment Tokens or Utility Tokens
Investment
Tokens
Utility
Tokens
Not
Ready-
to-use
Utility
Token
Ready-
to-use
Utility
Token

18. Thai financial law perspective
Status under the current legal framework
NFTs = Securities ?
• According to the current list of securities under the SEC Act and
relevant SEC notifications, there are currently no types of securities
that would capture NFTs.
• This may be different in other countries where, in some cases, certain
types of NFTs (with returns to token holders) may be considered as
an investment contract which is considered as securities. Under Thai
law, this characteristic will likely make NFTs fall under the definition of
Investment Token.

19. Thai financial law perspective
Status under the current legal framework
Q: So, can you issue NFTs under Thai law?
A: Yes, as long as
• such NFT does not have an element of an Investment Token (e.g. sharing of
revenue or profits derived from the underlying assets of such NFT)
• the rights encapsuled in such NFT can be used immediately at the time of
purchase – to mitigate the risks of NFTs being considered as not-ready-to-use
Utility Tokens

20. Thai financial law perspective
Status under the current legal framework
A NFT platform/marketplace under the digital asset laws?
§ Subject to the business models and arrangements, the platform might be
considered as a regulated or non-regulated business:
Digital Asset
Exchange
Digital Asset Broker Digital Asset Dealer Non-regulated

21. The Notification of the Securities and Exchange Commission No. Kor Thor.
18/2564 Re: Rules, Conditions and Procedures for Undertaking Digital Asset
Businesses
(No. 11) (effective from 11 June 2021 onwards) without retrospective effect.
Digital asset exchanges are prohibited from providing services related to utility
tokens or cryptocurrencies that have any of the following characteristics:
(1) Meme token: having no clear objective or substance or underlying, and whose
price running on social media trends;
(2) Fan token: tokenized by the fame of influencers;
(3) Non-fungible token (NFT): a digital creation to declare ownership or
grant of right in an object or specific right. It is unique and not
interchangeable with digital tokens of the same category and type at the
equal amount;
(4) Digital tokens which are utilized in a blockchain transaction and issued by
digital asset exchanges or related persons.
The Notification No. 11 also prescribes that digital asset exchanges must specify in its
listing rules that they will not list NFTs.
***These requirements are applicable to the locally licensed digital asset exchanges in
Thailand only.
Thai financial
law
perspective
Restrictions on
listing rules
https://www.sec.or.th/EN/Pages/News_Detail.aspx?SECID=8994

22. Financial law
perspective
Crypto-payments
https://www.bot.or.th/English/PressandSpeeches/Press/2021/Pages/n4964.aspx
“Bank of Thailand (BOT), revealed that the BOT has continuously
monitored the developments in use cases of digital assets. Recently
some enterprises have begun soliciting payments in digital assets
such as Bitcoin and Ether as payment for goods and services.
The BOT has previously iterated that digital assets are not legal
tender and doing so constitutes barter trade between the owner of
the digital asset and the provider of goods and services, where the
payer and the receiver mutually accept all risks involved.”
Should the use of digital assets as a means of payment for goods
and services become widespread, the BOT will coordinate with the
Securities and Exchange Commission (SEC) and other related
agencies to take the necessary measures to ensure that they do not
pose extensive risks to the general public or the economic and
financial system.
The BOT recognizes the importance of financial innovation and
applications towards enhancing the efficiency of payment systems to
support economic activities and will continue to ensure that the public
receives the full benefits of innovative developments.

23. Thai financial law perspective
Anti-money laundering laws
The Anti-Money Laundering Act, B.E. 2542 (1999), as amended (the "AML
Act") applies to financial institutions and persons in professions listed under
Section 16 of the AML Act (collectively regarded as reporting entities).
Key purpose of the
AML Act
The AML Act was introduced
with the key purpose to prevent
money laundering activities and
to impose preventive measures
that the reporting entities have
to conduct on their customers.
The AML Act
Reporting entities
Financial institutions
Persons in professions
listed under Section 16 of
the AML Act
• Digital asset
business operators
• ICO portal

24. Reporting entities must comply with certain requirements and conduct the required
measures, which include, among others, setting out relevant policies and
measures, conducting know your customer ("KYC") and customer due diligence
("CDD") measures when conducting a transaction or establishing a business
relationship with a customer and during the course of business relationship with a
customer, reporting certain transactions as required by law, keeping record of the
relevant information, and conducting training for AML-related staffs.
The Anti-Money Laundering Office ("AMLO") prescribed
details of the aforementioned measures in the subordinate
regulations for reporting entities to comply with.
Financial law perspective
Anti-money laundering laws

25. Intellectual property law perspective

26. n What does investor acquire in terms of IP?
Ø No IP of underlying work is transferred or
assigned (unless otherwise agreed).
Example:
Copyright to a piece of painting minted into an NFT version
is not transferred upon purchase of the NFT.
IP laws & NFT

27. IP laws & NFT
n Copyright – Can an NFT itself be copyrighted?
Ø an NFT simply represents data on a blockchain.
Ø may not be deemed an original work of authorship under intellectual
property law.

28. IP laws & NFT
n Trademark
Ø Assignment or license of registered trademark requires official
registration.
Ø Trademark licensor & licensee – should consider addressing the NFT
issue
Ø NFT Platform – should consider applying for registration of its brands
and logos used in relation to its platform for trademark protection.

29. Intellectual property law perspective
n Fraud / authorship / false authorship
Ø “minters” lie about their identity when creating NFTs and put them for
sale on NFT marketplace
Ø the case of “Weird Undead”
Ø Reason:
A tweet with this Weird Undead artwork was minted and put up for
auction without the artist's consent. (Supplied: Weird Undead)
Lack of a strong
legal framework in
the NFT market.

30. IP laws & NFT
n If an NFT is made of a work and sold without the copyright holder’s
consent, what rights does the copyright holder have?
Ø File a complaint straight to the NFT marketplace platform (e.g., on the
grounds of breach of terms of use, IP infringement - take down notice)
Ø Take a legal action
o Civil action – monetary compensation, removal of copyright infringing content
o Criminal action (private or public prosecution) – fines, imprisonment

31. NFT Platform User Agreement – Key points to consider
1. Restriction on who can join the platform
2. Gas fees for minting NFTs
3. Transaction fees
4. Can a user withdraw any proceeds made from creation/sale of NFT off the
platform?
5. Continuing royalties for creators of NFTs?
6. If the NFT is made using an infringing/illegal content, how does the NFT
platform handle this issue?

32. 3
Things to note before
buying and selling NFTs

33. Key
considerations
before buying
n The platforms
Where you choose to buy your NFTs since
different marketplaces cater to different
types of NFT collections
n Liquidity
Unlike cryptocurrencies that are always
liquid, NFTs can be long term
commitment with little liquidity
depending on the type and popularity of
NFTs purchased.
n Fees and costs
Significant transaction fees are additional
costs that may vary from platform to
platform.

34. n Rights
• If you are able to retain any rights
to the original work.
• The legal rights of the seller.
n Profits
The percentage of the sales that you
will be making from the platform.
n Protection
How do you protect your work from
unauthorized reproduction,
copyright infringement, or
plagiarism.
Key
considerations
before selling

35. The platforms
Q: Do NFTs platforms need a requisite license to operate?
https://www.natlawreview.com/article/nft-license-breakdown-exploring-different-marketplaces-and-associated-license-issues
A: Depending on the applicable laws and the specific NFT platform model.
Also, certain selling method (e.g. auction) may require a specific license.
There are at least three key different types of marketplaces facilitate the sale
and/or resale of NFTs:
open
marketplaces
curated
marketplaces
proprietary
marketplaces

36. The platforms
Exploring Different Marketplace
Open Marketplaces
Open” marketplaces are OpenSea and Rarible, where
anyone can mint2 and sell NFTs. On these
marketplaces, there is no need to apply and get accepted
– creators just connect to a wallet and mint the NFTs.
Existing owners of NFTs can list their NFTs for resale.
Curated Marketplaces
Meaning that the platform determines which
NFTs are allowed to be minted, posted and sold
on directly its marketplace. Compared to an
open marketplace, a curated marketplace is
more limited and exclusive, requiring artists to
apply and be accepted before being able to
mint or sell NFTs in an attempt to keep fraud
down and quality high. Some of the more well-
known curated marketplaces include
SuperRare, Foundation, KnownOrigin, Nifty
Gateway and MakersPlace.
https://www.natlawreview.com/article/nft-license-breakdown-exploring-different-marketplaces-and-associated-license-issues

37. The platforms
Proprietary Marketplaces
• These platforms typically only offer NFTs created by the marketplace operator and usually do not
facilitate the sale or display of other NFTs.
• Given that third-party creators are not invited to list NFTs on their sites, the exclusivity and
scarcity of their NFTs often results in very high demand and high prices.
• In contrast to proprietary marketplaces, which only mint their own items, creators on other
marketplaces retain the rights to the IP underlying their NFTs. This is because marketplaces that
permit minting on their platforms are merely facilitating the creation of the NFT, but are not
developing the actual artwork.
• Another distinguishing aspect of proprietary marketplaces is that some offer their own online
“Showcases” where users can display their collection of the marketplaces’ NFTs.
• Some examples of proprietary marketplaces include Top Shot, Vee Friends, and Bored Ape Yacht
Club.
Exploring Different Marketplace
https://www.natlawreview.com/article/nft-license-breakdown-exploring-different-marketplaces-and-associated-license-issues

38. NFT-Specific Marketplace Common Terms
The license terms on the various marketplaces
vary based on the type of marketplace, the
business model and other factors.
There are some standard terms that commonly
used across the NFT marketplaces, regardless of
business models.
The relevant standard terms for electronic
marketplaces in general should also be included
(i.e., age restrictions, privacy, and user conduct),
but the focus here is to highlight how the NFT-
specific issues are addressed by these
marketplaces.
Examples of topics of terms that will impact the stakeholders
under NFT marketplaces include the following.
• Account Registration
• Linking a Digital Wallet
• Ownership of Platform IP
• Indemnification
• Arbitration Process
• License to User and Creator Information and Content
• Seller’s Representations
• Rarity Representation (creators must agree not to mint
multiple NFTs for the same artwork.)
• Affirmative Acceptance (Initial Purchasers/Subsequent
Buyers)
• Subsequent Sale
• Initial Sale
https://www.natlawreview.com/article/nft-license-breakdown-exploring-different-marketplaces-and-associated-license-issues

39. Example T&C
Opensea
https://opensea.io/tos

40. 4
Looking forward:
challenges and
opportunities in
the Thai market

41. Regulators?
Legal and Regulatory Challenges
Cyber Security and Fraud Risks
AML and CFT Challenges
Global platform: Compliance and Enforcement
Challenges

42. Business operators?
Smart Contract Risks and NFT Maintenance
ML and FT Risks
Cyber Security and Fraud Risks
Consideration of NFTs as securities / other regulated
business
Challenges

43. Creators/sellers/buyers/collectors?
Challenges
Unauthorized reproduction
Copyright infringement
Plagiarism
Legitimacy of platform
Liquidity of NFTs
Hidden fees and costs
Ownership rights
Profits

44. Looking Forward: New opportunities
• Support the decentralization of finance
• Generate new digital products
• Generate income for artists/creators
• Create new digital business opportunities

45. Questions

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© 2021 Baker & McKenzie Ltd.
Kullarat Phongsathaporn
Partner
Bangkok, Thailand
Tel: +66 90 980 6605
E-mail : kullarat.phongsathaporn@bakermckenzie.com
Facebook page: fintechlaw
Siranya Rhuvattana
Partner
Bangkok, Thailand
Tel: +66 85 980 2335
E-mail : siranya.rhuvattana@bakermckenzie.com